Mr Terry Clontz has announced his retirement as StarHub's CEO, effective January 2010, but he will continue as Director. He will be replaced by Mr Neil Montefiore, ex-CEO of M1. (Neil left M1 in January this year.) We think StarHub shares could react negatively to the news of Terry's departure. We believe Terry is a very highly regarded and respected CEO and has built a successful integrated business, and the second largest mobile carrier in Singapore. However, we see some operational risks on the horizon: a) national broadband network (NBN) impact on consumer prices and the ability to win enterprise customers; and b) uncertainty surrounding English Premier League (EPL) rights. As witnessed recently in the UAE, EPL ownership rights cannot be guaranteed and pricing is a key factor – Abu Dhabi TV won the rights recently, which were previously held by Showtime Arabia, and before that by Arab Radio and Television Network (ART). We maintain our NEUTRAL rating on StarHub.

Undoubtedly Mr Montefiore brings along with him deep knowledge of the local market and M1’s business, which could see StarHub target its segment more aggressively, in our view. Despite this, we still believe that M1 has an opportunity to expand its product offering in NBN world which could see incremental revenue upside. Execution will not be easy. We maintain our BUY rating – with a dividend yield of 8.3% in FY09F.

We do not expect any significant change in the competitive landscape in the near term. In fact, SingTel remains relatively more competitive. The company has been expanding its new media revenues and IT exposure, and this is likely to remain a focus. While we maintain BUY, our price target is under review.

SingTel: Our 12-month price target is based on our DCF sum-of-the-parts model. We use an average discount rate (WACC) of 9.08% for Singapore and the Optus businesses, with a terminal growth rate of 2.0%. Our discount rates for associates are 10-12%, with terminal growth rates ranging from 2% to 4%.

StarHub: Our DCF-based 12-month price target assumes a WACC of 8% with a terminal growth rate of 1.5%.

Mobile1: Our DCF-based 12-month price target uses a WACC of 8.7%, calculated using an 11% cost of equity, a 4% cost of debt and a terminal growth rate of 1.0%.